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Is Moderna a Buy After Its Earnings Disappointment?

By Adria Cimino – Nov 7, 2021 at 6:30AM

Key Points

  • It’s important to consider Moderna’s prospects in a post-pandemic world.
  • The company is working on booster candidates and aims to create a combined flu/coronavirus/allergy shot.
  • Your investment horizon is key when deciding whether to buy Moderna shares.

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Vaccine revenue won't be as high as promised.

Moderna (MRNA -1.76%) has been a sure bet for most of the past year and a half. The company brought its coronavirus vaccine from early development to market in about nine months. And the product has been generating billions of dollars in revenue -- and profit -- ever since. As a result, the shares have soared. Last year, they climbed 434%. And this year, they gained 230% right up until Moderna's third-quarter earnings report this past week.

Then, in two days, the stock tumbled 33%. That's after Moderna lowered its forecast for vaccine sales this year. Now the question is this: Is this a golden opportunity to buy the stock? Or is Moderna's stock market success story over? Let's find out.

Three investors study something on a laptop in a modern office.

Image source: Getty Images.

Moderna's bad news

First, let's take a quick look at what seemed to be bad news. Moderna lowered its forecast for 2021 coronavirus vaccine sales to the range of $15 billion to $18 billion. That's down from earlier guidance of $20 billion. To make matters worse, Moderna's third-quarter revenue and net income fell short of analysts' estimates. Moderna reported revenue of $4.97 billion versus Wall Street's expectation for $6.21 billion. And net income came in at $7.70 per share versus the analyst estimate of $9.05.

A glimpse behind the numbers should relieve some of investors' worries though. Earlier in the year, Moderna shipped mainly to the U.S. and Europe. In the third quarter, Moderna had to quickly adjust to shipping doses to dozens of countries worldwide. This slowed things down. And if doses are late to their destinations, payment comes in later as well. But this won't be a problem forever. Moderna already has hired and invested in digital technologies to help it speed up its processes.

As for the annual forecast, the news here isn't so bad either. Moderna is prioritizing shipment of doses to lower-income countries. That will delay some shipments to higher-income countries. Higher-income countries pay more for the vaccine. Lower-income countries pay less. And that explains why Moderna expects to record less revenue than planned in the coming weeks.

Possibilities post pandemic

So, the weaker-than-expected third quarter earnings and lower forecast don't signal a drop in demand for Moderna's vaccine. That said, it's important for investors to start looking at Moderna's possibilities in a post-pandemic world. That's because we don't know whether vaccine revenue growth will keep growing in leaps and bounds or eventually stagnate.

One important thing to note is Moderna has built up an enormous amount of cash. The company said the level reached $15.3 billion by the end of the third quarter. This means Moderna has what it takes to advance its coronavirus programs and other candidates in the pipeline.

And here, there is a lot to be positive about. Moderna's studying three strain-specific booster candidates in phase 2 clinical trials. The company also has a refrigerator-stable next-generation COVID-19 vaccine in phase 1 trials. And during its earnings call, Moderna said it aims to develop a combination flu/coronavirus/allergy booster. It already is exploring a flu/coronavirus candidate in preclinical studies. One or more of the above can help Moderna maintain a leading position in the coronavirus market of the future.

Beyond the coronavirus

Beyond coronavirus, Moderna has more than 30 programs in the pipeline across therapeutic areas. It recently launched a pivotal trial for a cytomegalovirus vaccine candidate. A potential product could bring in at least $2 billion in peak annual revenue.

Now let's look at where Moderna's shares stand. The stock now is trading at less than eight times forward earnings estimates. That's down from a high of 16 a few months ago. This seems like a pretty reasonable price considering the strength of Moderna's pipeline.

At the same time, the key financial metrics of free cash flow and return on invested capital are on the rise.

MRNA Free Cash Flow Chart

MRNA Free Cash Flow data by YCharts

So, is now a good time to buy Moderna shares? If you're looking for a quick gain -- no. Moderna shares may run into more bumps as the company tries to settle into its spot in the post-pandemic world. But if you're a long-term investor, yes. Here's why. What Moderna announced this week doesn't change revenue or earnings prospects for the biotech company down the road. The coronavirus vaccine gave Moderna the opportunity not only to make billions of dollars – but also to show its mRNA technology works. All of Moderna's programs use this technology. If even a few are successful, the COVID-19 vaccine may be just the beginning for this biotech company.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.

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